Low earners who were victim to a discrepancy in pensions payouts first identified in 2018 are finally to receive compensation, according to HMRC.
The issue arose due to the difference in the way pension tax relief rules are applied on net-pay and relief-at-source schemes.
Workers whose annual salary is less than the personal allowance (currently £12,570 a year) but who are automatically enrolled into a pension do not get the 20 per cent tax relief if they are in a net-pay scheme.
A bulletin issued by HMRC confirmed that the government body will contact those affected directly, with direct payouts starting “in the coming months”. Employers, payroll teams and pension scheme administrators do not need to apply, assess eligibility, amend payroll records or contact HMRC on behalf of individuals.
HMRC will take a phased approach to the payouts, gradually expanding the rollout over the remainder of the year and into early 2027.
Around one million people are thought to be impacted, with roughly three quarters being women.
Last year, Corporate Adviser revealed that the payouts had been delayed due to IT and administration issues.
A 2021 Government consultation estimated that the average payment would be around £53, though the exact figure will depend on how much was paid in to the pension by each individual. The latest reporting has the amount placed at £70 per recipient.
However, former pensions minister Steve Webb, now a partner at consultancy LCP, also claimed that there may still be issues with low earners actually receiving their entitled payouts.
He says: “The process of getting these payments to the right people is going to be incredibly painful and there is a real risk of huge non take-up. Most people will not have a clue about this issue and may be suspicious of a letter out of the blue from HMRC offering them free money.
“Some may suspect it is a scam. It is vital that communications are effective to make sure that people get the money to which they are entitled.”
Despite the discrepancy being first identified in 2018, it is only low earning individuals making pension contributions to net pay schemes from 2024-25 who will be eligible to claim a top-up.
